Please use this identifier to cite or link to this item: https://doi.org/10.1111/j.1467-9965.2011.00488.x
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dc.titleA nonzero-sum game approach to convertible bonds: Tax benefit, bankruptcy cost, and early/late calls
dc.contributor.authorChen, N.
dc.contributor.authorDai, M.
dc.contributor.authorWan, X.
dc.date.accessioned2014-10-28T02:28:41Z
dc.date.available2014-10-28T02:28:41Z
dc.date.issued2013-01
dc.identifier.citationChen, N., Dai, M., Wan, X. (2013-01). A nonzero-sum game approach to convertible bonds: Tax benefit, bankruptcy cost, and early/late calls. Mathematical Finance 23 (1) : 57-93. ScholarBank@NUS Repository. https://doi.org/10.1111/j.1467-9965.2011.00488.x
dc.identifier.issn09601627
dc.identifier.urihttp://scholarbank.nus.edu.sg/handle/10635/102702
dc.description.abstractConvertible bonds are hybrid securities that embody the characteristics of both straight bonds and equities. The conflicts of interest between bondholders and shareholders affect the security prices significantly. In this paper, we investigate how to use a nonzero-sum game framework to model the interaction between bondholders and shareholders and to evaluate the bond accordingly. Mathematically, this problem can be reduced to a system of variational inequalities and we explicitly derive the Nash equilibrium to the game. Our model shows that credit risk and tax benefit have considerable impacts on the optimal strategies of both parties. The shareholder may issue a call when the debt is in-the-money or out-of-the-money. This is consistent with the empirical findings of "late and early calls." In addition, the optimal call policy under our model offers an explanation for certain stylized patterns related to the returns of company assets and stocks on call. © 2012 Wiley Periodicals, Inc.
dc.description.urihttp://libproxy1.nus.edu.sg/login?url=http://dx.doi.org/10.1111/j.1467-9965.2011.00488.x
dc.sourceScopus
dc.subjectConvertible bonds
dc.subjectCredit risk
dc.subjectLate and early calls
dc.subjectNash equilibrium
dc.subjectStochastic game
dc.subjectTax benefit
dc.subjectVariational inequalities
dc.typeArticle
dc.contributor.departmentMATHEMATICS
dc.description.doi10.1111/j.1467-9965.2011.00488.x
dc.description.sourcetitleMathematical Finance
dc.description.volume23
dc.description.issue1
dc.description.page57-93
dc.identifier.isiut000313550300003
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